iS tHE dOLlaR abOUt to cRaSH?

I hate to start this note off with some bad news but… there’s just no way we can ignore the elephant in the room any longer. So here goes…

After doing *extensive* research over the last 37-minutes… and when I say extensive, I mean I went DEEP… I probably watched the first 1/13ths of maybe five different 7ish minute-long YouTube videos, clicked on the top four suggested results from a single google search, and finally scrolled through twitter for the remaining half hour.

My findings… well, they are, shall we say… disturbing.  And I hate to be the bearer of grave tidings but I call ‘em how I see ‘em and apparently guys and gals,  we’re witnessing the complete and total collapse of the fiat US dollar system… a massive debasement of titanic proportions, ensuring the quick end to the US’s exorbitant privilege as the world’s reserve currency…

Shocking, I know… But my sources are credible. This is coming from a wide-range of YouTube influencers with zero background in markets, economics, or finance (so they’re not tainted by bias). I also read some real damning articles on the dollar’s demise from this totally above-the-board website

Oh… and yeah, some bank called Goldman’s Sach is pretty fired up about the USD’s end too.

I submit the following as evidence to you the jury.

On a somewhat unrelated note, I also learned that Bill Gates is trying to depopulate the world through tainted vaccines (a typical Billy G move). And, as if that wasn’t enough. Apparently… there’s a powerful shadowy satanic worshipping cabal of Democratic pedophiles trying to take down the honorable patriot, Donald Trump.

What a blessing the internet is… To think I was soooooo ignorant before I started this knowledge quest and journeyed into the digital Library of Alexandria that is the interwebs.

What a blessing. And I must say… parents have to be super excited about the prospects of their kids doing at-home online schooling for well into the foreseeable future. Let’s plug our little ones in and get all great this knowledge into their tiny impressionable brains right away, I say!

Alright, sarcasm quota has been hit for the day.

Now I’m going to tell you why the internet is wrong, again.

This is part of my ongoing series titled “The Internet Is Wrong, Again”. You can find my first in the series titled “Yield Curve Inversion: Why This Time is Different” from way back in early 2019 when the consensus thinking was that a recession and bear market was nigh. And then there’s my popular follow-up in the series titled “Much Ado About Nothing: Repo Rates and Doom Narratives” where I talk about, well I’m sure you can guess.

Anywho… this is the start of a short series of posts I’ll be doing on the dollar. In today’s note, we’re going to take a quick look at where we are.

In the follow-up pieces, I’m going to share with you my framework for analyzing hard currencies and we’ll talk about a thematic that I call “Core Domination”. It’s going to be the major driver of macro trends over the next 5+years so make sure to catch that one. And in the finale of the series, I’ll end by answering the question “is the US dollar at risk of losing its status as the world’s reserve currency” — to give you a hint, the answer is: NO.

Okay, so let’s begin by putting this “dollar crash” into perspective. It’s experienced a “devastating” “violent” “plunge” of *checks notes* … 10% from its cycle highs.

Looked at on a monthly basis it’s bouncing off the lower end of its 5-year long trading range. So from a technical standpoint, the Dollar Doom crowd might be getting a bit ahead of themselves.

In fact, I’d rather be a buyer here than a seller since I know Newton’s First Law of Markets reigns supreme and a dollar in consolidation tends to stay in consolidation. Until, obviously, it doesn’t. This trading range has held for 5-years (minus the brief 18’ undershoot) and we should expect that to continue until the tape says otherwise.

If looked at in a Marcus Trifecta Lens, which is how we analyze everything here at MO. The technicals favor a reversion to the mean over the short-term.

Next, we have sentiment and positioning.

We already have a good sense of where sentiment is since I don’t think anything screams consensus more than a throng of popular teenage Youtubers streaming advice on how to protect your 401k from the coming dollar crash.

So I think we’re safe in skipping that one and going straight to positioning. And here the hard data confirms the soft.

Take Citi’s Pain Index for example. This index tracks positioning by looking at FX fund performance relative to currency moves. It recently dipped below -40, indicating that Funds are very short some USD.

Similar crowded positioning is reflected in the CoT data. Here’s Commercial net data showing a rare dollar long position — implying specs are very short.

And here’s the positioning breakdown by pair. The euro’s long positioning is in the 100th percentile for the last decade (the euro comprises more than half of the trade-weighted USD basket).

So long-term the dollar is at lower support in a 5-year sideways range. Sentiment and positioning are ringing alarm bells. Now, all we need is an actual setup.

Let’s have a look at the daily timeframe.

Here we have a chart showing a clear 3-push sell climax.

This pattern typically shows up as the result of a buy or sell climax and often takes the shape of a wedge. In essence, it shows waning momentum and an inability of buyers/sellers to make headway after three attempts — a sign of trend exhaustion. This typically sets the stage for a 2-leg (minimum) reversal. That’s what I’m looking for in the dollar right now.

I’ll be sending out an alert to fellow Collective members if and when this trade triggers. Look out for the follow-up piece later this week where I’ll dive into my FX framework and one of my favorite macro thematics at the moment;  my “Core Domination” theory.

Stay safe out there and keep your head on a swivel.

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.